Minneapolis Business Lawyer

Mergers (Due Diligence & Negotiations)

Mergers occur when two businesses combine into one larger company. In general, they are voluntary and consist of cash payments or stock swaps. With a stock swap, the shareholders of the companies share the same risk. A merger can appear to be a takeover but result in a new company name. Companies commonly describe their combinations as mergers (as opposed to acquisitions) for marketing and political purposes.

Types of Mergers

Mergers are divided into four classifications. A horizontal merger occurs when both companies work in the same industry producing similar products. When two companies who work at different levels of production combine, it is known as a vertical merger.

Congeneric mergers take place when the businesses are in the same general industry but lack common buyer or supplier relationships. Lastly, conglomerate mergers occur when the firms are in completely different industries.

Mergers and Antitrust

Mergers often raise concerns in antitrust circles. The Herfindahl index can be used to analyze the effect of the merger on the market and find preventive measures if they are available. The European Commission, U.S. Federal Trade Commission, and United States Department of Justice investigate anti-trust cases to prevent monopolies. These bodies also have the power to prevent mergers from taking place.

Due Diligence and Negotiation

A merger does not necessarily indicate that a successful institution will result. Many mergers actually result in a net loss due to problems of compatibility that need to be fixed. Items such as technology, equipment, and corporate culture may have issues meshing. For the merger to be considered a success, shareholder value must increase at a more rapid rate than if the companies were separate entities.

In order to ensure that a merger is the best option, it is important that all parties involved exercise due diligence. This is an involved process which allows firms to analyze their compatibility on several different levels, including:

• Accounting and Finances
• Corporate Culture/Issues
• Sales and Marketing
• Human Resources
• Technology/IP
• Legal/Compliance Issues

Another challenge which merging firms must face is negotiation. Because the demands, goals, and viewpoint of different firms, executives, and workforces vary greatly, it is vital that the involved parties reach an agreement as to the future of their companies. The assistance of an experienced Minneapolis business attorney is invaluable during both these phases.

Contact Us

If your company is considering a merger with another firm, contact the experienced Minneapolis business lawyers of Skjold ▪ Barthel at 612-746-2560 today.